Van Dyck Law, LLC is a full service Estate Planning & Elder Law practice. They write about comprehensive planning in the areas of wills, trusts, powers of attorney, medical directives, Elder Law and probate & estate administration.

For example, if your checking account is titled in your spouse’s and your name “with rights of survivorship” (WROS), you effectively co-own the account. That one should be all set, at least until the surviving spouse dies.

Your will instructs your executor on the transfer of any assets that aren’t transferred by title or contract. That’s probably at least some of your estate. Therefore, if you don’t have a will, make an appointment with an estate planning attorney to make sure you have this important document.

Next, the beneficiary designation contacts for assets like your retirement accounts, pension plans and insurance policies should be reviewed when there’s a life event, like a birth or adoption of a child, a divorce, or a marriage.

Start the process by identifying all the accounts you own, including life insurance policies, annuities, and the like that will pass by beneficiary designation. You should then see who the primary and contingent (secondary) beneficiaries are for each. You can usually assign percentages to your beneficiaries. Therefore, you could name your spouse as primary beneficiary, 100%. Your siblings could then be secondary beneficiaries in equal shares.

Some contracts allow you to have your funds be distributed “per stirpes.” In that case, if you name your three children as primary beneficiaries, they each would receive a third. However, if your eldest son dies with you, with per stirpes, his share will go to his children.

In addition, there may be situations when you might designate a trust as a beneficiary. This can get complicated, so work with an experienced trust and estate attorney.

In any situation, if it’s been a long time (or never) since you reviewed your beneficiary designations, do it right away.

10/22/2018

“Though retirement can be an exciting milestone to look forward to, for many older Americans, the thought of leaving the workforce is overwhelmingly stressful.”

A big part of the stress of retirement are all of the unknowns. There are still certain things you can do that will give you more confidence about your retirement, and help you make good decisions that are based on information, not hopes and dreams or fears. The Motley Fool has some suggestions in the article “3 Ways to Approach Retirement More Confidently.”

Start with a budget. The chances are that you don’t know how much money you spend every month. You’re working, money comes in and it goes out. However, if you know how much money you are spending, and what you are spending it on, you’ll be able to have a handle on how much money you’ll need for retirement. You’ll also be able to see where your discretionary dollars are going and make a conscious decision, as to whether or not those are dollars that should be going into long-term savings for your retirement.

Remember that while some expenses may go down—like commuting—others will stay the same. You won’t be going to the office every day, but you will want to enjoy yourself. What will your leisure and entertainment activities be, and how much will they cost? How will you handle health care costs? You should also remember that there will be quarterly taxes to be paid.

The more information you can pull together about your spending, savings and unavoidable costs, like taxes and health care, the better you’ll be able to plan for this next phase of your life.

How much income will your retirement accounts provide? We tend to focus on how much we need to save, but we should really focus on how much income our retirement savings will generate. How much will your IRA or 401(k) provide on a monthly basis?

Let’s say you’ve saved $500,000 in time for retirement. If you use an annual 4% withdrawal rate, which is the going rule these days, you’ll only have $20,000 a year generated for annual income. If you add Social Security to that amount, you may find that it’s not enough to enjoy the lifestyle you’ve anticipated for retirement. You may find that part-time employment can fill the gap, or you may need to work for a few more years.

Be smart about Social Security. Despite your years of saving, you will likely come to rely on Social Security to pay some of your bills. The smarter you are about your filing strategy, the better positioned you’ll be to maximize your Social Security benefits. If you wait until your Full Retirement Age, you’ll get the full monthly benefit you’re entitled to. If you can hold off claiming your benefits until age 70, you’ll max out as the monthly benefits increase every year you delay claiming.

Heading into retirement can be unnerving, as you move into new areas of financial management. Work with your estate planning attorney, who can give you guidance as you move into this new phase of life.

10/08/2018

“The National Institute for Retirement Security examines the retirement account balances, or lack thereof, for all working-age individuals.”

Can you believe that the “typical working American” doesn’t have any retirement savings? That’s according to a new report from the National Institute on Retirement Security.

Think Advisor’s recent article, “Most Americans Have $0 Saved for Retirement: NIRS” says that, using U.S. Census Bureau data, the report looked at median retirement account balances for those age 21 to 64. The report revealed that nearly 60% of all working-age individuals don’t have assets in a retirement account. That’s based on the Census Bureau’s Survey of Income and Program Participation data from the year 2014.

With 59.3% of people not owning a retirement account, a worker in the middle of the overall workforce would have a goose egg in retirement savings. The National Institute on Retirement Security report found that nearly about three-quarters of workers in the 21-to-34 age bracket, over half of those ages 35 to 44, half ages 45 to 54, and also about half in the 55-to-64 age range don’t have a retirement account.

The report included in its definition of retirement accounts employer-sponsored plans like 401(k)s, 403(b)s, 457(b)s, SEP IRAs and Simple IRAs, as well as private retirement accounts—such as traditional and Roth IRAs. In the report’s analysis, an individual was deemed to own a retirement account, if her total retirement account assets were more than zero. There’s a significant gap between older and younger folks in retirement account ownership, and the report found that that this gap is much wider across income groups.

“Individuals with retirement accounts have a higher median income of $51,024, compared to $17,004 among individuals without retirement accounts—three times as large,” the report states.

The research also showed that the median account balances were insufficient, even among individuals with retirement accounts. In fact, for those approaching retirement (age 55 to 64) with retirement accounts, the average balance was $88,000. The report suggested this amount would only provide a “few hundred dollars per month in income if the full account balance is annuitized, or if an individual follows the traditionally recommended strategy of withdrawing 4% of the account balance per year (this amounts to less than $300 per month).”

In addition, the report found that 22% of working individuals age 21 to 64 with retirement savings had saved less than a year’s income. Among working individuals closest to retirement (age 55 to 64), just 17% of those with retirement savings saved this amount. That’s not many. Given these standards, early retirees would need to save retirement assets, equal to 14 times their salary at age 62. The savings target of 10 times income at age 67, is designed to enable income payments to last until a person is 93.

If you forget, you may find that your designated beneficiary isn’t who you want it to be. That can frequently be the case in the event of a divorce, remarriage or if new children or grandchildren were welcomed to the family since your retirement plan account was started. If you named a charity as your beneficiary years ago, it may no longer exist.

It is good if you are reviewing your estate plan regularly. However, remember that retirement accounts aren’t part of your estate and aren’t governed by the provisions of your will, so it is important to keep these retirement documents updated.

Retirement account beneficiary designations are often neglected: they don’t get the attention they need!

Failing to update beneficiary designations can be very frustrating for the family. They’re the ones who will need to go to court to get a legal determination of the true beneficiary. The judge’s decision may not be what the deceased would have wished.

There can also be an issue, if some children are named as beneficiaries, but the document isn't updated to include those who were born after the initial designation. That’s why you should update your beneficiary designation right after any change in family status—and review it periodically, so they never are out-of-date or incorrect. You should always have a contingency beneficiary.

Another option is to draft customized beneficiary designations to address "what-if" situations.

If you don’t name a beneficiary, the beneficiary may be determined by federal or state law, or by the plan document that governs your retirement accounts. For qualified plans like profit-sharing plans, 401(k)s, and money purchase pension plans, federal regulations automatically designate the spouse of the account owner as the beneficiary. The spouse has to approve of any other designation, and this must be in writing and notarized. If the retirement account owner is single, her estate may be the default beneficiary.

An IRA plan's documents also provide a default designation, if the designated beneficiary predeceases the IRA owner. The default options vary among IRA custodians and trustees. While the default options rid any administrative responsibilities from account owners, they may not reflect their preferences. As a result, account owners should review the plan document and be certain that they update their beneficiary designations regularly.

Many IRA plan documents have default beneficiary options, so if you designate two people as your beneficiaries and one predeceases you, the share that belonged to the deceased beneficiary automatically goes to the surviving beneficiary. If you have a customized designation, you can instruct how that portion would be distributed, instead of having it default to the surviving beneficiary.

Making a proper beneficiary designation is a crucial component of your estate planning. Be sure to talk to a qualified estate planning attorney about your beneficiary designations.

06/18/2018

“First-time home-buyers are often surprised by the requirements of obtaining a mortgage, especially when it comes to the down payment. One way you can improve your chances of getting a home loan, is by putting at least 20% down at the time of purchase.”

Forbes’ recent article asks, “Should You Use Your Retirement Savings to Buy a Home? The article suggests that your retirement account may be an option for the additional funds you need for a down payment on a new home. The IRS also offers some breaks for taxpayers who opt to use retirement assets to purchase a first home.

Get this: you don’t actually have to be buying a home for the first time in your life to be considered a “first-time” home buyer. The IRS defines a first-time home buyer as any home buyer who has had no present interest in a main home, during the two-year period ending on the date of acquisition of the new home. Therefore, provided that you haven’t lived in a home you owned for the last two years, you are considered a first-time home buyer, even if you previously owned a home. If you’re married, your spouse also has to satisfy this requirement.

If you withdraw money from a traditional IRA before age 59½, there's typically a 10% penalty for early withdrawal. However, the IRS has an exception that lets you withdraw up to $10,000 over a lifetime, without a penalty for first-time home purchases. You should also note that while the distributions are not subject to penalty, they are still subject to income taxes. If you’ve owned a Roth IRA for at least five years, any distributions used for a first-time home purchase (subject to the $10,000 lifetime limit) are treated as qualified distributions. This means the amount distributed will be exempt from penalties and income taxes. If you haven’t owned a Roth IRA for at least five years, your distribution may still avoid penalties but some or all of it may be taxed.

Any money you put into Roth IRAs comes out first. It isn’t subject to taxes or penalties because you’ve already paid taxes on the money before you deposited it. Therefore, the first-time home purchase exception is really only applicable after you’ve withdrawn all of your contributions. As a result, many people withdraw all of their initial contributions plus $10,000 of growth with no tax consequences.

This same exception does not apply to your retirement account through work. The only way to withdraw money from your employer-sponsored retirement plan (e.g., your 401(k)) for a home purchase, while you are working and under age 59½, is through a hardship withdrawal. Buying a home is one of the reasons allowed for a hardship withdrawal, but you’ll have the early withdrawal penalty if you’re under age 59½, and any pre-tax withdrawals or growth in your Roth 401(k) will also be taxed.

Another option is to use the 401(k) loan provision to access those funds to buy a home without the tax. Many companies also let you have longer than the standard five-year pay-back period to repay a residential 401(k) loan. However, you may have to show that you actually closed on a home. The interest you pay goes back into your own account but will be double taxed when you withdraw it.

If you plan on using the equity in your home as supplemental income in retirement, and you have trouble making payments on the loan, you could wind up losing your home and may also jeopardize part of your retirement nest egg.

06/14/2018

“Does your financial plan have a hole in it? Check to see if you have all five of the critical areas covered.”

The road to retirement continues to get more and more complicated. There are new products, new rules and new technologies. You need a guide. There are many of them out there—brokers, planners, agents, and money managers, all offering advice.

Kiplinger’s recent article, “5 Bases You Need Covered With Your Retirement Plan,” says there are plenty of financial professionals today who can get you started down the right path with investment advice. However, a professional who limits his or her professional life solely to investing advice, isn’t going to get you comfortably and confidently to your retirement goals. Be sure you have someone who will concentrate on these five key areas of your financial life:

Income Planning. Your retirement could last for decades. You must be certain that you’ll have reliable income streams to pay your monthly expenses. This area typically should cover things like Social Security maximization, income and expense analysis, inflation, a plan for the surviving spouse, longevity protection and investment planning. Once your income plan has been created, you need to analyze your remaining assets (those that you won’t have to draw from every month). This should cover your risk tolerance, adjusting your portfolio to reduce fees, volatility control, ways to reduce risk while still working toward your goals and comprehensive institutional money management.

Tax Planning. Your comprehensive retirement plan should include strategies to decrease tax liabilities, such as determining the taxable nature of your current portfolio, possible IRA planning, looking at ways to include tax-deferred or tax-free money in your plan, prioritizing tax categories from which to draw income initially to potentially reduce your tax burden and considering ways to leverage your qualified money to leave tax-free dollars to your beneficiaries.

It’s critical that your hard-earned assets go to heirs and loved ones in the most tax-efficient manner possible. Your financial adviser should work collaboratively with a qualified estate planning attorney to help with these tasks:

Maximize estate and income tax planning opportunities;

Protect any assets in trust and ensure that they’re distributed probate-free to beneficiaries and

Prevent your IRA and other qualified accounts from becoming fully taxable to beneficiaries upon death.

There’s much more to retirement than buying and selling: there are 30-plus years of financial security at stake. For that, you need a comprehensive plan and professional advice.

Investopedia’s recent article, “5 Investments You Can't Hold In An IRA/Qualified Plan” says that even qualified plans are allowed to hold almost any type of security, but mutual funds, annuities, and company stock are typically the three primary vehicles used in these plans. There are some limitations on the types of investments that can be held inside retirement accounts. Let’s look at them.

Life Insurance. No type of life insurance contract typically can be titled as an IRA or qualified plan or be held in such an account or plan. Qualified plans have one exception to this rule, known as the incidental benefit rule. It says that qualified plans can purchase a small amount of life insurance for a given plan participant. However, because the primary purpose of the plan is to provide retirement benefits, the amount of the death benefit must qualify as "incidental" compared to the plan balance.

Types of Derivative Positions. Any type of derivative trade that has unlimited or undefined risk, like naked call writing or ratio spreads, is prohibited.

Antiques/Collectibles. Stamps, furniture, porcelain, antique silverware, baseball cards, comics, works of art, gems and jewelry and fine wine can’t be held in these accounts.

Real Estate for Personal Use. You can hold real estate directly inside an IRA, but the IRA owner can’t benefit directly from the property in any sense, such as receiving rental income or living in the property. Therefore, you can’t purchase your house with IRA or retirement plan money. Real estate can be held in an IRA, provided that the investments aren’t in your personal name. The real estate expenses and income must be paid and deposited into your IRA. The IRA also cannot purchase your primary residence or any other vacation home (providing an indirect benefit).

In addition, the IRA can’t buy or sell property already owned by you or any other disqualified person, for example, your spouse, children or their spouses, parents, grandparents and great-grandparents, grandchildren and great-grandchildren. Note that many IRA custodians can’t facilitate the direct ownership of real estate or oil and gas interests, and those that do often charge annual administration fees that are much higher than usual fees.

Most Coins. As with all other types of collectibles, most coins made of gold or any other precious metal aren’t allowed. However, there are some exceptions. Some allowed coins include American Eagle coins (proof and non-proof), American Gold Buffalo coins (non-proof), American Silver Eagle (proof and non-proof), Austrian Gold Philharmonics coins, and Canadian Maple Leaf coins. To be allowed to be held inside an IRA, the coins must be very pure in their mineral content and not seen as a collector's coin.

The list of investments that may be held in an IRA is far larger than the list of investments that are not permitted. However, you need to know what can and cannot be included, if you wish to venture away from what most people keep in their IRAs: mutual funds.

IRAs are distributed differently than other assets, during life and after death. Your IRA beneficiaries may qualify for special tax breaks that are often overlooked. They can’t change ownership during life or be jointly owned. IRAs pass by contract generally, and not by a will.

IRAs may require their own estate plans, and those plans should be integrated within the overall estate plan. You should speak with your estate planning attorney about this.

As far as taxes are concerned, IRA investment gains may not be subject to the 3.8% investment income surtax and may be subject to double tax at death–both income and possibly estate tax.

For example, if you were to inherit an IRA from your father when he passes away and he has a taxable estate, as the beneficiary you may be entitled to a special deduction that can offset some of the otherwise-taxable distributions from that IRA. This deduction is easy to miss because two entities must coordinate their tax planning: (1) the settling estate and (2) the IRA beneficiary. It’s not common for these two to make a coordinated effort to realize all of the tax-saving opportunities.

The distributions from an inherited IRA are generally fully taxable to the beneficiary. You might be able to find shelter from that tax liability, which would be easier to catch before the inherited IRA begins to pay income. However, even if you’ve started to get income, you may still be entitled to take this deduction.

When an IRA owner dies, there are a few complex rules from the IRS with which you’re expected to comply. The 691(c) deduction for Income in Respect of a Decedent may be worth discussing with your estate planning attorney, if you have inherited an IRA or think you may in the future. IRAs are very different when it comes to how they mesh with your existing plans and those of your heirs.

IRAs can be great, but they can also create many issues for you or your heirs. Work with an experienced attorney and keep more of your hard-earned cash for you and your beneficiaries.

401(k)s. A 401(k) allows employees to save and invest some of their paycheck pre-tax. Taxes aren’t owed until the money is withdrawn from the account. The annual contribution limit for 401(k)s in 2018 will go up to $18,500 from $18,000. This jump also applies to 403(b) and 457 plans, as well as the federal government's Thrift Savings Plan. If you’re 50 or older, remember that there’s also a catch-up contribution for 401(k)s that will stay at $6,000. That brings the maximum total contribution limit to $24,500 in 2018.

IRAs. An individual retirement account is an investing vehicle used by people to earn money for retirement savings. The limit for IRA contributions will remain at $5,500 in 2018, and the catch-up contribution for people 50 or older will remain at $1,000. If you turn 50 in 2018, you can make the full $6,500 contribution any time after January 1. There is no need to wait for your birthday.

Roth IRAs. A Roth IRA is a special retirement account to which you contribute post-tax income (you can’t deduct your contributions on your income taxes). Because the tax has been paid, future withdrawals that follow Roth IRA regulations are tax free. There’s no up-front tax deduction for Roth IRA contributions, as there is with a traditional IRA. The income limits to qualify to make Roth IRA contributions will increase a bit in 2018.

If you are filing taxes as a single or a head of household, the maximum amount can be contributed to a Roth IRA, if the modified adjusted gross income (MAGI) is less than $120,000. The contribution amount will phase out completely, once MAGI is greater than $135,000 (an increase from $118,000 to $133,000 in 2017).

For married couples filing jointly, the maximum amount can be contributed, if MAGI is less than $189,000, with the amount phasing out above $199,000 (an increase from $186,000 to $196,000 in 2017).

11/02/2017

“Want to reduce your beneficiary's tax burden? Consider the estate planning power of a Roth IRA.”

There’s considerable talk about potential tax reform in Washington. It is anyone’s guess what that will look like in the end. However, taxes must be a significant concern for those who are doing estate planning in order to pass on their assets to their loved ones. Wise estate planning means you can avoid having a big part of the money you leave your heirs devoured by income taxes. It is a way to move that money to a nontaxable form.

Motley Fool’s recent article, entitled “A Clever Way to Cut Your Heirs' Income Taxes,” says the money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. So long as the Roth has been open for at least five years prior to your death, the money in that account is won’t be subject to federal income taxes.

In the event you leave the money in your Roth rather than spending it in your retirement, after your death the account will be transferred to the person you designated as a beneficiary. At that point, the Roth account will be subject to the IRS's rules for inherited IRAs.

The beneficiary must then begin to take distributions based on their predicted lifespan (pursuant to the IRS’s actuarial tables). If your beneficiary doesn't simply blow the money in the account right away, the balance in the Roth will continue to grow tax-free, providing them with some untaxed income in the future.

This estate planning strategy works, if you don't spend the money in the Roth account yourself. As a result, it's important to plan and find other sources of income to finance your retirement, leaving the Roth account for your heirs.

If you didn't set up a Roth account for yourself before you retired, don't worry, you can execute a Roth conversion at any age.